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Economy in Brief

U.S. ISM Nonmanufacturing Index Deteriorates To Three-Year Low
by Tom Moeller  July 03, 2013

The Composite Index for the service and construction sectors from the Institute for Supply Management (ISM) fell to 52.2 during June from 53.7 in May. This latest level was the lowest since February 2010 and disappointed consensus expectations for 54.2. Since the series' inception in 1997 there has been a 75% correlation between the level of the nonmanufacturing composite index and the q/q change in real GDP for the service and the construction sectors.

Haver Analytics calculates a composite index using the ISM nonmanufacturing and the ISM manufacturing sector index released Monday. The June figure fell to 52.0, the lowest level since January 2010. During the last ten years there has been a 74% correlation between the composite and the quarterly change in real GDP.

Last month's decline in the nonmanufacturing index reflected lower readings of business activity (51.7), new orders (50.8) and supplier deliveries (51.5), suggesting quicker delivery speeds. The employment component rebounded to 54.7, its highest level since February. Since the series' inception in 1997 there has been an 88% correlation between the level of the ISM nonmanufacturing employment index and the m/m change in payroll employment in the service-producing plus the construction industries.

The prices index also recovered modestly to 52.5, its highest level since March. An improved nineteen percent of respondents reported higher prices while a lessened 7% reported them lower. Since inception ten years ago, there has been a 65% correlation between the price index and the q/q change in the GDP services chain price index.

Beginning with the January 2008 Nonmanufacturing Report On Business, the composite index is calculated as an indication of overall economic conditions for the non-manufacturing sector. It is a composite index based on the diffusion indices of four of the indicators (business activity, new orders, employment and supplier deliveries) with equal weights.

The ISM data are available in Haver's USECON database. The expectations figure from ACTION ECONOMICS is in the AS1REPNA database. 

ISM Nonmanufacturing Survey (SA) Jun May Apr Jun'12 2012 2011 2010
Composite Diffusion Index 52.2 53.7 53.1 52.7 54.6 54.5 54.1
   Business Activity 51.7 56.5 55.0 52.4 57.7 57.2 57.6
   New Orders 50.8 56.0 54.5 54.7 56.6 56.3 57.0
   Employment 54.7 50.1 52.0 52.7 53.5 52.4 49.8
   Supplier Deliveries (NSA) 51.5 52.0 51.0 51.0 50.6 51.9 52.2
Prices Index 52.5 51.1 51.2 51.0 59.3 65.1 61.4
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